In 1998, Priceline had pioneered the revolutionary 'Name Your Own Price' pricing system that was the inverse of the of the customer-retailer relationship. Some analysts had raised concerns that a business model

based on the path-breaking NYOP system might not be sustainable. Priceline had since moved beyond the NYOP system by providing

customers with the option of choosing from a list of published prices for its travel products and services as well. In a bold move in end2007, the company permanently eliminated all booking fees on published airfares

taking the analysts and competitors by surprise.

Business Model• Demand Collection System -- the patented

"name-your-price" model pioneered by Priceline.com. Prospective buyer makes a final (binding) bid for a specified good or service, and the broker arranges fulfillment.

What are the core components of Priceline.com's business model

• The fundamental concept of Priceline.com's model lies in its reverse auction pricing system which allows its users the ability to find discount travel related items by placing bids. Priceline's model is geared toward industries which have rapidly aging inventory, items such as airplane tickets, hotel room reservations, and car rentals. The company is not a direct supplier of these services; it functions more as a middleman, providing price quotes from various major hotel chains, airlines, and rental car companies. Its name your own price system is geared more toward bargain hunters seeking low prices as selecting the brand of hotel and airline using the Priceline system is not possible

Do you think Priceline will ultimately succeed or fail? Why?

• While Priceline initially started out running in the red unable to generate a profit running at a loss of upwards of $1 billion during its infancy, it has since reached the point of profitability. Since its turnaround in 2003 it has been able to reach and maintain sustained profitability. This is due to the demand from consumers for discount travel tickets and hotels. The reverse auction model which Priceline uses to link the sellers with buyers is what has made it profitable. However, during times of recession luxury items are usually sacrificed by the consumer and thus the impending recession will have a significant impact on the travel and tourism industry which in turn could cut into Priceline's profitability

.

How has Priceline (and similar online services) impacted the travel services industry?

• The use of these business models has given the travel services industry more flexibility in arranging for the sales of its services. This allows vendors the opportunity to gain additional revenue by selling its products for below retail prices without having to change its existing pricing structure. It also allows the general population an alternate means to book more affordable vacations

• Priceline core business model appears to have remained relatively the same to the 2005 version of itself. The same fundamental sections which appear on its website flights, hotels, rental cars, vacation packages, and cruise services remain at the heart of Priceline's business model to this day. Its competition comes from other online middleman companies which exist and operate to this day such as Expedia.com, Travelocity.com, Hotels.com, Orbitz.com, and Cheaptickets.com.

According to Forbes.com Priceline reported its 2007 4th quarter earnings at $334.9 million a 28.8% increase from over a year ago. Its gross profit for the quarter was $160.2 million a 60.9% increase from the previous year.

The update article outlines the recent acquisitions made by Priceline as well as its earnings per share and overall profitability during the four quarters of 2007. It also details various strategic moves made by the company to gain and edge over competitor travel booking sites such as Expedia, Travelocity, and Orbitz.

• With this in mind the core components of Priceline’s business model are based around their pioneered and patented reverse auction pricing model which is a unique offering within the travel market place. This innovative model allows consumers to purchase travel services at a discounted prices by trading off brand and features.

• Michael Rappa explains that Priceline uses a business model known as brokerage model where a business creates their own market by bringing buyers and sellers together. Priceline operate as the middle man or broker bringing the two parties together in a seamless and friendly manner.

• Priceline receives it’s revenue based on the difference between the “Name your own price” amount entered by the customer and the amount charged by the service provider such as the airline.

• During Priceline’s early start up days they experimented with variations of its business model by offering groceries and gasoline, which initially had negative impacts on profitability. However Priceline’s management were able to adapt and focus their model so that it started producing significant returns. This is evident by the fact that Priceline improved from a $1 billion loss to a profit of over $10 million between the years of 1999 to 2003. Since 2003 Priceline has continued to be profitable and grow, increasing its stock price over 27 times from its lowest to slightly under $200 USD in 2010 and is now sporting a market valuation of $8.8 billion. Priceline’s revenues are expected to grow 20 percent in 2010, compared with 11 percent at Expedia and 4 percent at Orbitz. If the past few years are any indication, maybe, just maybe, bad times aren’t that bad for Priceline . Additionally Priceline recently announced a ground breaking hotel price guarantee that pays customers a nominal reward if they find a lower price than the one offered by Priceline. As part of their expansion and growth they recently acquired the multinational car hire reservation service TravelJigsaw to provide more their value added services to their customers. (Priceline Investor Relations)

• Although the travel industry is saturated and has ever increasing competition, the population of the internet and those willing to buy goods and services over the web also continues to grow. This should also assist Priceline with its well known and strong brand advertising to help maintain their reasonably dominant market share.

How has Priceline and similar online services impacted the travel services industry

• Priceline and other online services have changed the travel industry by acting as the go between providing consumers access to deals with travel providers such as airlines or hotels therefore reducing the layers of separation and the need for agents and broker fees. Additionally Priceline and similar services have provided an avenue for travel services to clear excess inventory and receive revenue from airline seats or hotel rooms which would have otherwise remain unfilled. These efficiencies have reduced the costs to travel providers such as cuts in the booking fees airlines pay distributors. Ultimately lowering costs to consumers.

• Services like Priceline have caused a shift in consumer demographics to consumers with a short attention span, and simple easy to use (user friendly) facilities (Business trends in the travel industry). Additionally opening up a new demographic of consumers who previously could not afford airline travel.

• Niche travel deals allowing travel services such as airlines and hotels to offer fairly unique one off deals to sell just a few remaining seats or rooms. Without the online services of companies like Priceline it would be difficult if not impossible for travel service providers to advertise these niche deals without impacting their normal retail offering.

• As Priceline and other similar services aggregate airline and hotel services they turn them into commodities where people only shop based on price. Brand and other features become non existent when products and services are aggregated against each other purely based on price

Has Priceline’s business model changed since 2007? And if so how? Who are its strongest competitors? Is it profitable or operating at a loss?

• Priceline has changed its business model since 2007 focusing more on traditional online reservation services where customers have the flexibility to select from brand and features rather than their more restrictive and discount “Name your own price” model. The Priceline website is now organized much like those of its competitors. Customers can still choose to bid, but this is no longer the only option. More alternatives, up to a point, usually increase customer satisfaction and this has been the case for Priceline, now up 6% to an all-time high ACSI score of 76. Value for money remains high, strengthened by elimination of booking fees, while service quality has improved. Alongside the improvement in customer satisfaction, Priceline’s stock value soared by nearly 200% in 2009 (ACSI).

• Priceline also continues to strive towards providing customers with a superior user-friendly service such as the launch in Jan 2009 of a The Travel Ekspert blog providing advice to consumers and also offering over 2.5 million hotel reviews (PhoCusWright).

• As detailed by Answers.com Priceline’s strongest competitors would be:• Expedia

Orbitz WorldwideTravelocity

• As shown in the direct competitor comparison chart provided here by Yahoo Finance Priceline is well above the industry average and competing quite strongly against it’s direct competitors. However due to the fact that Travelocity is a privately held company they can not be included in the comparison and their position is relatively unknown.

• Priceline is currently operating at a profit which can be seen in these key statistics published on Answers.com• Key numbers for fiscal year ending December, 2009:

Sales: $2,338.2MOne year growth: 24.1%Net income: $489.5MIncome growth: 153.0%Employee growth: 12.9%

• This profit and growth is quite positive given that the world has recently been through a global financial crisis and is still recovering from this and the fact that during this time travel generally takes a lower priority. Given this Priceline is doing all

the right things to keep consumers traveling.

Gross Booking

2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500 DomesticInternational**Total

Domestic International** Total

2Q08 $872 1,238 $2,110

3Q08 $800 1,251 $2,051

4Q08 $689 792 $1,481

1Q09 $851 1,092 $1,943

2Q09 $964 1,415 $2,379

3Q09 $999 1,724 $2,723

4Q09 $831 1,433 $2,264

1Q10 $989 1,975 $2,964

2Q10 $1,154 2,256 $3,410

3Q10 $1,121 2,885 $4,006

Gross Booking

2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

AgencyMerchant**Total

Agency Merchant** Total

2Q08 $1,657 453 2110

3Q08 $1,604 447 2051

4Q08 $1,108 373 1481

1Q09 $1,470 474 1944

2Q09 $1,825 555 2380

3Q09 $2,131 592 2723

4Q09 $1,766 498 2264

1Q10 $2,374 591 2965

2Q10 $2,683 727 3410

3Q10 $3,168 838 4006

Growth Yr/Yr

2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q100.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

DomesticInternationalTotal

Domestic International Total

2Q08 59.2% 80.1% 70.9%

3Q08 32.8% 58.6% 47.4%

4Q08 31.1% 16.5% 22.9%

1Q09 18.1% 5.3% 10.5%

2Q09 10.6% 14.3% 12.8%

3Q09 24.9% 37.8% 32.8%

4Q09 20.6% 81.0% 52.9%

1Q10 16.2% 80.8% 52.5%

2Q10 19.6% 59.5% 43.3%

3Q10 12.2% 67.3% 47.1%

Growth Agency/Merchent

2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q100.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

AgencyMerchantTotal

Agency Merchant Total

2Q08 80.2% 43.6% 70.9%

3Q08 53.8% 28.3% 47.4%

4Q08 21.4% 27.5% 22.9%

1Q09 7.3% 21.9% 10.5%

2Q09 10.1% 22.4% 12.8%

3Q09 32.9% 32.6% 32.8%

4Q09 59.4% 33.5% 52.9%

1Q10 61.5% 24.8% 52.5%

2Q10 47.0% 31.1% 43.3%

3Q10 48.7% 41.4% 47.1%

Units Sold

2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 -

5.0

10.0

15.0

20.0

25.0

30.0 Hotel Room-NightsRental Car DaysAirline Tickets

Hotel Room-Nights Rental Car Days Airline Tickets

2Q08 10.9 2.8 1.4

3Q08 11.4 2.3 1.2

4Q08 9.1 2.2 1.1

1Q09 12.8 3.0 1.5

2Q09 15.7 3.2 1.6

3Q09 17.9 2.6 1.5

4Q09 14.6 2.4 1.3

1Q10 20.0 3.0 1.5

2Q10 23.2 4.3 1.6

3Q10 27.5 5.1 1.5

Growth

2Q083Q08

4Q081Q09

2Q093Q09

4Q091Q10

2Q103Q10

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Hotel Room-NightsRental Car DaysAirline Tickets

Hotel Room-Nights Rental Car Days Airline Tickets

2Q08 50.2% 23.6% 98.2%

3Q08 43.6% -0.2% 44.8%

4Q08 38.0% 11.1% 43.7%

1Q09 36.4% 15.4% 28.0%

2Q09 44.0% 15.0% 13.9%

3Q09 56.3% 11.6% 30.2%

4Q09 59.9% 6.6% 16.2%

1Q10 56.8% -0.9% 2.8%

2Q10 48.2% 32.0% 4.1%

3Q10 54.1% 97.3% -4.6%

2Q083Q084Q081Q092Q093Q094Q091Q102Q103Q10$0.0

$200.0

$400.0

$600.0

$800.0

$1,000.0

$1,200.0

RevenueGross Profit

Revenue Gross Profit

2Q08 $514.0 $253.7

3Q08 $561.6 $316.1

4Q08 $406.0 $205.1

1Q09 $462.1 $208.3

2Q09 $603.7 $305.2

3Q09 $730.7 $434.0

4Q09 $541.8 $313.2

1Q10 $584.4 $319.1

2Q10 $767.4 $445.3

3Q10 $1,001.8 $666.2

Growth

2Q8 3Q8 4Q8 1Q9 2Q9 3Q9 4Q9 1Q10 2Q10 3Q100.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

RevenueGross Profit

Revenue Gross Profit

2Q8 44.4% 61.4%

3Q8 34.6% 56.2%

4Q8 21.3% 28.0%

1Q9 14.6% 15.0%

2Q9 17.5% 20.3%

3Q9 30.1% 37.3%

4Q9 33.4% 52.7%

1Q10 26.5% 52.7%

2Q10 27.1% 45.9%

3Q10 37.1% 53.5%